Rule Will Not Go Into Effect on September 4th, as Scheduled

On August 20, 2024, a Texas federal court blocked the Federal Trade Commission’s (FTC) Non-compete Rule, which was scheduled to go into effect on September 4, 2024. The court found that the FTC acted beyond its lawful statutory authority when promulgating the rule, and that the rule itself is “arbitrary” and “capricious.”

This ruling has a nationwide effect and “affects persons in all judicial districts equally.” Previous injunctions against enforcement of the rule were very narrowly tailored, applying only to the plaintiffs in the case. The practical effect of the August 20th court action is that:

• Employers in Massachusetts and nationwide are not required to follow the FTC rule banning non-compete clauses in employment contracts.
• Massachusetts employers can continue to enforce non-compete clauses according to Massachusetts law, which allows such agreements to protect “reasonable competitive business interests.” However, what makes a non-compete agreement “reasonable” in terms of duration and geographical distance—and therefore enforceable—is left up to the courts.

It is likely that the FTC will appeal this ruling. Additionally, two other court cases—one in Pennsylvania and one in Florida—are also progressing through the courts. The judge in the Florida case, like the case in Texas, ruled against the FTC. However, a judge in Philadelphia found that the FTC, in enforcing federal antitrust laws, has the power to ban practices that it deems anticompetitive, including non-compete agreements. This discrepancy means that the issue will most likely eventually be heard before the U.S. Supreme Court, which often takes up cases where lower courts disagree on an issue.

Could the State of Massachusetts Act?

With the federal landscape regarding non-compete agreements in flux, and many legal experts finding it increasingly unlikely that a national ban on such agreements will occur, it is possible that the Massachusetts Legislature could take up the issue.

More states in recent years have passed laws limiting the use of non-compete agreements. Minnesota, California, Oklahoma, and North Dakota have blanket bans, and more than 30 other states have partial bans, such as bans on their use in healthcare or other specific industries, or for low-income workers.

In Massachusetts, there are currently discussions that could lead to updates in the state law regarding non-compete agreements. The MCS Government Relations team is closely monitoring the issue and will provide updates as they become available.

Conclusion

With ongoing legal challenges and potential changes to the federal regulatory landscape, as well as possible state action on the issue, it is critical that employers—especially those that regularly use non-compete clauses in employment contracts—stay up-to-date and ready to adapt to potential changes. Watch your email and other MCS communication channels for additional information moving forward.

Disclaimer: This article is intended for informational purposes only and does not constitute legal advice regarding any specific matter or situation. Legal information is not the same as legal advice, which is the application of law to an individual’s specific matter, situation, or circumstances. Legal advice may be given only on the basis of specific facts relayed by a client to an attorney. The MCS goes to great lengths to ensure our information is accurate, useful, and up-to-date. However, we recommend consulting an attorney if you want or need professional assurance that our information, and your interpretation of it, applies to your specific legal situation.